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Republican state lawmakers want to spend $2.7 billion in new tax money during the current special legislative session, raising concerns among some budget watchers that the state may not be able to meet future unexpected costs without cutting programs.

The Texas House and Senate have advanced proposals that would spend $1.5 billion to complete 100 miles of barriers along some of the high-traffic areas of the 1,254-mile Texas-Mexico border. The Senate has also proposed adding $1.2 billion to the public education budget to increase teacher pay, boost school safety and bump state payments to schools.

The proposals would expand the record $321.3 billion state budget for 2024-25 that lawmakers passed just four months ago.

Due to unexpectedly high tax collections in recent months, Texas was flush with more cash than ever as lawmakers headed into session in early October to address border issues and a private-school voucher program — both of which failed during the regular session in spite of being heavily pushed by Republican Gov. Greg Abbott.

If they pass, lawmakers will be left with — at most — $3.3 billion to take care of any unforeseen costs over the next two years before they hit a constitutional spending limit they set to rein in budget growth between cycles.

Analysts on both ends of the political spectrum wonder if that will be enough.

“I think they’re cutting it awfully close,” said Shannon Halbrook, senior fiscal analyst at Every Texan, a progressive policy think tank in Austin that advocates for higher education funding but is against more border spending. “The two biggest items in the budget by far are public education — K-12 and higher ed — and health care. I imagine that's where they would try to cut first. But Texans across the state depend on adequately funding those parts of the budget. And we should make sure enough is left over to deal with natural disasters or other unexpected needs during the next two years.”

Just before the special session started, state Comptroller Glenn Hegar told lawmakers that there was about $6 billion more in revenue than his office had anticipated in January when the budget-writing process began.

At the time, Hegar suggested they spend some of the extra cash on boosting teacher pay, something that was widely promised but also failed to pass during the regular session.

Free-market economist Vance Ginn said he’d prefer lawmakers not spend the extra cash on government programs — particularly if they’re not going to send back every extra dollar to Texans in the form of more property tax cuts.

"If you're going to spend more in one area, maybe that's the best policy decision that they want to make, and maybe that's the best way to do it," he said. "But I would like to see spending cuts in other places. Like, say we're not gonna spend as much over here and now we have it available over there."

But the Republican budget writers don’t seem to be doing that, he said — leaving little wiggle room in future spending cycles.

The new spending proposals come just four months after a historic $32.7 billion surplus led lawmakers to approve unprecedented levels of spending for the 2024-25 budget cycle, which started in September.

Lawmakers took advantage of overflowing state coffers to spend $144 billion of tax money, including half that surplus, on priorities that included property tax cuts, beefing up border security operations, building mental health hospitals, and investing in water infrastructure, broadband and public parks.

Meanwhile, next week voters are going to decide whether to spend up to $20 billion of that money through constitutional amendments, which Ginn said could lock the state into commitments like continuing to pay billions to public schools or on costly infrastructure projects. It could also create a framework for uncontrolled spending since money approved by voters isn’t subject to any spending limits at all, he said.

“They're just adding to what is the largest spending increase in Texas history, and so as a fiscal conservative, there's a lot of questions about how quickly they're spending taxpayer money,” said Ginn, a former fiscal policy analyst for the conservative Texas Public Policy Foundation. “I've been pretty frustrated by the lack of spending restraint … I think that we're setting ourselves up for unsustainable spending.”

Border bills with no price tag

Lawmakers are facing mounting pressure to address school vouchers, teacher pay and illegal immigration. But the pressure to also rein in tax spending is not lost on those who are making the billion-dollar decisions.

During hearings on the border wall funding, Senate Finance Chair Joan Huffman, a Houston Republican, fielded questions from rural lawmakers about whether putting more money into the barrier would lock them into a spending cycle on an issue that should be handled by the federal government.

Huffman told her colleagues that the wall was just a small part of a larger plan to protect the border through barriers, technology and personnel — before asking Texas Border Czar Mike Banks, who oversees border issues for Abbott’s office, to elaborate for the skeptical committee members.

“I don't want the public to think there's just a bunch of people spending money,” Huffman said. “[We] are trying to look at how we can be most effectively and fiscally responsible in putting this much money into a serious problem … Clearly there’s going to be some pushback. It’s a lot of money.”

Senate Bill 6, by Huffman, and House Bill 6, by state Rep. Jacey Jetton, R-Richmond, both propose sending $1.5 billion to Abbott’s office to administer funds to continue building border barriers that will eventually cover 100 miles — along with floating barriers on the Rio Grande — on parts of the Texas-Mexico border.

The money would be on top of at least $1.5 billion in contracts the state has issued since September 2021 and in addition to $1.5 billion Abbott received for his border mission earlier this year. The state has spent some $10 billion on border operations since 2021, Huffman said.

What’s unknown is how much higher that amount will go if lawmakers pass House Bill 4, by state Rep. David Spiller, R-Jacksboro and Senate Bill 4, by state Sen. Pete Flores, R-Pleasanton, both border-related bills with no price tag attached.

HB 4 would empower Texas law enforcement officers to arrest, jail or send back migrants who cross the border illegally. That bill was approved by the House. Senators are pushing for changes to the bill that would not allow Texas officers to send migrants back across the border; instead they would be turned over to federal authorities.

SB 4 would increase the minimum sentence from two years to 10 years for smuggling immigrants or operating a stash house. That bill has been approved by both chambers and now goes to the governor’s office for Abbott’s consideration.

Fiscal analyses of those bills by the Texas Legislative Budget Board say there will be likely costs to the state and local governments, but that there is no way to reliably predict what they will be.

DPS Chief Steve McCraw told senators in a hearing Wednesday that “clearly we’ll be arresting more people” under the legislation, and that if that happens, “there needs to be capacity built around it” in terms of courts, detention capacity, law enforcement and indigent defense.

McCraw estimated that officers could detain as many as 80,000 border crossers per year if HB 4 passes.

“I would like a more accurate number,” said state Sen. Juan “Chuy” Hinojosa, D-McAllen, a member of the Senate Finance Committee. “We don't really have a handle on the costs … Otherwise we’re just groping in the dark, traveling through the fog, and we don’t have any real plan on what the actual cost is, or how we’re going to manage it.”

The border bills, with their financial unknowns, provide “a lot of opportunity for cost overruns at the local level,” state Sen. Charles Perry, R-Lubbock, another Senate Finance Committee member, said at a hearing this week.

“My concern is that we’re going to spend $1.5 billion … [but that] probably won’t scratch the surface of the potential cost to the state,” Perry added. “I’m concerned that if this is the only money — and I’m not about spending more money, in fact I’ve got reservations anyway — but that we’re not going to fund the [budgetary] problem we’re creating.”

Education savings accounts and other variables

The uncertainty over the impact of the session on the budget isn’t limited to border spending.

One of the education proposals making its way through the special session is Senate Bill 2, by state Sen. Brandon Creighton, R-Conroe, which would add $1.2 billion in new funding for school security, payments to schools and teacher pay raises.

The lack of clarity for future spending comes with the potential cost of a separate proposal, Senate Bill 1, also by Creighton, which would spend $500 million of the current budget on a voucher program for parents to spend on schools that are not part of the public education system.

What’s not known is what the program could cost in the future if Abbott and other Republican budget leaders decide to use their interim budget authority to bump up the funding for the program in the next two years — not mention how big they’ll allow the program to become in future sessions.

At its current funding levels, the proposed school voucher program would cost at least $1 billion per cycle to maintain.

House and Senate budget writers will have roughly $18.6 billion in surplus cash waiting for them in state coffers when they reconvene in January 2025 to write a new budget, Hegar estimated, but most of that money can’t be used this cycle unless lawmakers take the unlikely step of voting to bust the spending limit.

What they do have available, currently $6 billion before the cap is reached, can be used to fill gaps created in the next two years by unforeseen costs or revenue drops. Lawmakers typically build leeway into the budget to account for those gaps.

But the costs can fluctuate dramatically.

They frequently include about $2 billion to supplement Medicaid services in the state and an average of nearly $200 million to cover prison health care cost increases, both of which are shortfalls legislators plan on each session. In addition, the state often has to cover emergency funding to respond to hurricanes or other natural disasters.

Lawmakers also must be prepared to cover gaps created by recessions or even the slowdown of inflation, which dampens sales tax collections and reduces the amount of money available for the state budget.

Some say that with a considerable surplus waiting for them in the next budget cycle and plenty of ways around spending limits generally, the notion that lawmakers will be strapped to the point of cutting programs is unlikely in the near future.

“Budget writers have some flexibility in adjusting how certain programs are funded and the timing of that funding, which can create more flexibility for budget writers in 2025 to meet the priorities of the 89th Legislature,” said Rahul Sreenivasan, a policy adviser at Texas 2036, an Austin think tank.

But given all the variables between now and then, the $3.3 billion left over if all the proposals pass “might be enough to cover an anticipated Medicaid shortfall, but may not leave room for much else under this spending cap,” Sreenivasan said.

And that’s if nothing about Hegar’s prediction changes in the next 18 months.

“The revenue outlook can change,” Sreenivasan said. “The comptroller previously said this revised estimate was still a conservative estimate, suggesting there are scenarios where our projected fund balance will be even higher, as well as scenarios where the revenues come in even lower than projected.”

Disclosure: Every Texan, Texas 2036 and Texas Public Policy Foundation have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

This article originally appeared in The Texas Tribune at https://www.texastribune.org/2023/11/02/texas-budget-surplus-border-education/.

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